Background: A Soviet-backed communist regime gained power in Poland after the second world war. The Solidarity trade union movement arose from a peaceful national revolt in 1980. Partly free elections in 1989 led to the formation of the first non-communist government in eastern Europe. Between 1989 and 2005 governments composed of parties descended from the Solidarity movement alternated in office with coalitions led by the former communists, renamed the Democratic Left Alliance (SLD). Since 2005 elections have been won either by the conservative-nationalist Law and Justice (PiS) party (2005) or the liberal, centre-right Civic Platform (PO; 2007, 2011). In October 2015 the PiS scored a resounding victory in the parliamentary election and returned to power.

Political structure: Poland is a parliamentary republic. Parliament consists of two houses: the 460-seat Sejm (the lower house), elected by proportional representation, and the 100-seat Senate (the upper house), chosen through first-past-the-post contests in the regions. The president is elected in a direct ballot and has the right to veto legislation or send it for review to the Constitutional Tribunal. The Sejm needs a three-fifths majority to override a presidential veto.

Policy issues: The PiS-led government has moved to tame many of the country’s public institutions, including the media and the judiciary. It has introduced new taxes in the financial and retail sectors—in which foreign firms have a strong presence—although introduction of taxes in the retail sector has been postponed. The revenue-raising measures are unlikely to offset higher public spending on social welfare and defence, and a fall in tax revenue from a reduction in the statutory retirement age from October 2017. Russia’s actions against Ukraine since 2014 have pushed security back up the policy agenda. The adoption of the euro is unlikely to be a priority in the foreseeable future, particularly given widespread public opposition. The PiS-led government’s actions may prevent Poland from taking full advantage of financial transfers from the EU.

Taxation: The basic rate of value-added tax (VAT) is 23%. Reduced rates of 8% and 5% apply to certain goods and services. The headline corporate tax rate is 19%. A reduced 15% rate may apply to small companies and start-ups. There are two rates of personal income tax, set at 18% and 32%. Excise duties and social security contribution rates are comparatively high.

Foreign trade: In 2017 the current account registered a surplus of US$538m (0.1% of GDP), following a deficit of 0.5% of GDP in 2016. About 80% of exports and 60% of imports are traded with Poland's EU partners. Strong export growth resulted in surpluses on the foreign trade balance in 2015-17. Poland is well integrated into west European supply chains and is a major supplier for the German automotive industry.